In Part I of this post, we examined the contours of Section 34(4) of the Arbitration and Conciliation Act, 1996 (the "Arbitration Act"), pre-conditions for its invocation and the scope of the powers conferred upon the court thereunder. In this post, we analyse some of the questions and ambiguities that may arise in the applicability of Section 34(4) of the Arbitration Act.
Can Section 34(4) of the Arbitration Act be invoked to eliminate any ground under Section 34(2) of the Arbitration Act?
Section 34(2) of the Arbitration Act provides two sets of grounds on which an award may be set aside. Section 34(2)(a) sets out grounds of challenge such as incapacity of a party, invalidity of the arbitration agreement, lack of proper notice of appointment of the arbitrator or of the arbitral proceedings or inability of a party to present his case, an award which deals with disputes not submitted to arbitration, improper composition of the arbitral tribunal or arbitral procedure contrary to the agreement between the parties, etc. These grounds must be established by the party challenging the award, on the basis of the record of the arbitral tribunal.
Section 34(2)(b) of the Arbitration Act provides that an award may be set aside if the court finds that the subject-matter of the dispute is not capable of settlement by arbitration or if the award is in conflict with the public policy of India.
The grounds under Section 34(2)(b) of the Arbitration Act are substantive and go to the root of the award. If an award deals with a dispute which cannot be settled by arbitration, then this is logically not a ground that is capable of elimination and the court must set aside the award in such a case, notwithstanding an application under Section 34(4) of the Arbitration Act. The ground of conflict with public policy is also not capable of elimination by the arbitral tribunal, inter alia given that it may not only be wasteful, but possibly prejudicial, to send parties back to an arbitral tribunal which has passed an award in conflict with public policy. Even if sending back an award which is in conflict with public policy were neither wasteful nor prejudicial, the intention of the Parliament could never have been to give an arbitral tribunal a second bite at the cherry by reviewing and rewriting the award on merits.
The Supreme Court recently shed some light on this issue in Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd.,1 while dealing with an award which it found to be unintelligible and inadequately reasoned, when it held as follows:
- If the challenge to an award is based on impropriety or perversity in reasoning, then it can be challenged strictly on the grounds provided under Section 34 of the Arbitration Act.
- Unintelligible awards are to be set aside, subject to party autonomy to do away with reasoned awards.
- The legislative intention of Section 34(4) of the Arbitration Act was to make the award enforceable, after giving an opportunity to the arbitral tribunal to undo curable defects.
- In case of absence of reasoning, the utility under Section 34(4) of the Arbitration Act has been provided to cure such defects. When there is complete perversity in reasoning, then only it can be challenged under Section 34 of the Arbitration Act.
- The power vested under Section 34(4) of the Arbitration Act to cure defects can be utilised in cases where the award does not provide any reasoning or if the award has some gap in reasoning or otherwise, and that can be cured so as to avoid a challenge based on the aforesaid curable defects under Section 34 of the Arbitration Act.
Dyna (supra) draws a clear distinction between defects in an award which are curable, and those which are not, for the purpose of Section 34 of the Arbitration Act. The court may give an opportunity to the arbitral tribunal to eliminate the former under Section 34(4) of the Arbitration Act. However, as far as the latter goes, the award must be set aside by the court.
What grounds of challenge are capable of elimination by the arbitral tribunal?
The following are some situations in which courts have found it fit to exercise their powers under Section 34(4) of the Arbitration Act.
- A Division Bench of the Bombay High Court observed that the power under Section 34(4) of the Arbitration Act could be exercised where the arbitral tribunal overlooked a particular claim on which the parties led evidence and addressed arguments.2
- A Single Judge of the Bombay High Court also exercised his power under Section 34(4) of the Arbitration Act where the arbitral tribunal failed to consider an objection relating to its jurisdiction.3
- MMTC v. Vicnivass Agency,4 as we saw in Part I of this post, was a case where the Madras High Court exercised its jurisdiction under Section 34(4) of the Arbitration Act, where a party was denied the opportunity to present its case i.e. to deal with a document, which was relied upon by the arbitral tribunal.
- Dyna (supra) classified a lack of reasoning or a gap in reasoning as a curable defect as opposed to perversity in reasoning, which cannot be cured and would necessitate the setting aside of the award.
We may attempt to further ascertain the scope of Section 34(4) of the Arbitration Act, by the process of elimination. An arbitral tribunal does not have the power to review its own award.5 Therefore, an arbitral tribunal cannot be allowed to review the award (or the reasoning thereunder) on merits or rewrite the award under the guise of being granted with an opportunity to eliminate the grounds for setting aside the award under Section 34(4) of the Arbitration Act. Further, Section 33 of the Arbitration Act provides a specific procedure for correction of computational, clerical, or typographical errors in the award by the arbitral tribunal and requires parties to apply for correction of such error within 30 days from the receipt of the award. This ought to rule out correction of such errors by the arbitral tribunal by resuming arbitral proceedings under Section 34(4) of the Arbitration Act.
MMTC's (supra) finding that the arbitral tribunal itself determines the scope of enquiry so as to eliminate the grounds of objection and has wide discretion to eliminate these grounds in such manner as it deems fit, is very broad and could be subject to misuse. As pointed out above, there are only certain classes of grounds which are capable of cure or elimination by an arbitral tribunal. It would, therefore, logically follow that the court must identify the grounds of challenge, which have been made out in an application under Section 34(1) of the Arbitration Act, and resort to Section 34(4) of the Arbitration Act only if such grounds are capable of elimination by the arbitral tribunal. The absence of such protocol may lead to several issues, including the fact that the arbitral tribunal may wind up re-writing the award, which is impermissible, and may be gravely prejudicial to a party challenging the award.
Further, one could argue that Section 34(4) of the Arbitration Act should be resorted to only where it would eliminate all curable grounds of challenge, which have been identified by the court. For instance, take a situation where the court finds that the award is liable to be set aside because the arbitral tribunal overlooked a particular claim (a curable ground), but also finds that the basic reasoning in the award is contrary to the fundamental policy of Indian law. Resorting to Section 34(4) of the Arbitration Act in this situation, may be completely inappropriate, as even if the arbitral tribunal cures the (curable) ground and considers the overlooked claim, the court would still be required to set aside the award on the ground of it being contrary to the fundamental policy of Indian law.
Whilst some amount of clarity on the scope of Section 34(4) of the Arbitration Act can be pieced together from various precedents, there is still room for inconsistent application of this provision by various courts (including District Courts). If the court does not identify the curable defects before resorting to Section 34(4) of the Arbitration Act, any action taken by the arbitral tribunal to eliminate grounds for setting aside of the award could open up the possibility of further challenge by the party aggrieved by such action. This could cause inordinate delay in the enforcement of arbitral awards and would militate against the efficacy of the arbitral process. Therefore, a comprehensive exposition of the actual scope of Section 34(4) of the Arbitration Act is sorely needed.
1 2019 SCC OnLine SC 1656
2. Geojit Financial Services Ltd. v. Kritika Nagpal (Judgement dated 25th June 2013 passed by the Bombay High Court in Appeal No. 35 of 2013 in Arbitration Petition No. 47 of 2009)
3. Suresh Prabhu v. Bombay Mercantile Co-op Bank Ltd. & Ors. 2007 (5) BomCR 205
4. 2009 (1) MLJ 199
5. State of Arunachal Pradesh v. Damani Construction Co. (2007) 10 SCC 742
Originally published May 29, 2020
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